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Corporate Social Responsibility, the Business Judgment Rule and Human Rights in Australia — Warm Inner Glow Or Warming the Globe?

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Corporate Social Responsibility, the Business Judgment Rule and Human Rights in Australia — Warm Inner Glow Or Warming the Globe? CORPORATE SOCIAL RESPONSIBILITY, THE BUSINESS JUDGMENT RULE AND HUMAN RIGHTS IN AUSTRALIA — WARM INNER GLOW OR WARMING THE GLOBE? NIGEL WILSON* Corporate social responsibility (‘CSR’) has had a renaissance in corporate governance. CSR has been regarded more often as a commercial law concept which has been readily applied in the commercial boardroom but has received little judicial consideration in the courtroom. Recent corporate reform in Australia in relation to directors’ duties, specifi cally the business judgment rule, has provided a ‘safe harbour’ corporate governance framework for the exercise of directors’ duties generally, including, and perhaps unexpectedly, in relation to CSR-related activities. More broadly, the concepts which underpin CSR are also consistent with contemporary human rights developments. Importantly, CSR also has a potential role to play in relation to corporate attitudes towards climate change, provided it is supported by active decision-making by directors of both transnational corporations and small to medium enterprises. I INTRODUCTION Corporate social responsibility (‘CSR’) has had a renaissance.1 Whilst the concept of CSR has existed for some time,2 over the last two decades CSR has been one of the catchphrases of corporate governance, both internationally and in Australia. The suggested benefi ts of the adoption of CSR principles have included positive outcomes in diverse areas of human and corporate activity. The breadth of CSR’s possible application has included benefi cial impacts in relation to employment, human resources and the work environment, reputation and risk management, brand recognition and differentiation, environmental protection, community * LLB (Hons), B Ec, BCL (Oxon); Senior Lecturer, University of Adelaide Law School; Barrister, Bar Chambers, Adelaide, South Australia. 1 The adoption and consideration of CSR principles has not been a new phenomenon. See David L Engel, ‘An Approach to Corporate Social Responsibility’ (1979) 32 Stanford Law Review 1; Robyn Lansdowne and Julian Segal, ‘The Social Responsibility of Modern Corporations’ (1978) 2 University of New South Wales Law Journal 336. 2 Ramsay observes that the debate has been in existence for at least 70 years: Ian Ramsay (ed), Corporate Governance and the Duties of Company Directors (Centre for Corporate Law and Securities Regulation, 1997) 8; this is refl ected in the well-known debate between A Berle and E Dodd: A Berle, ‘Corporate Powers as Powers in Trust’ (1931) 44 Harvard Law Review 1145; E Dodd, ‘For Whom are Corporate Managers Trustees?’ (1932) 45 Harvard Law Review 1145; A Berle, ‘For Whom Corporate Managers are Trustees: A Note’ (1932) 45 Harvard Law Review 1365; see also Marina Nehme and Claudia Koon Ghee Wee, ‘Tracing the Historical Development of Corporate Social Responsibility and Corporate Social Reporting’ (2008) 15 James Cook University Law Review 129. Corporate Social Responsibility, The Business Judgment Rule and Human Rights in Australia 149 — Warm Inner Glow or Warming the Globe? involvement, voluntary ethical conduct in place of formal legislative regulation, the positive promotion of otherwise negative industries, investment attraction for ‘socially responsible investment’ and access to global markets and government or publicly-funded projects.3 In this article the current framework of the CSR debate in Australia is identifi ed in Part II, including the battle both for meaning and acceptance of the concept, and the charge that it is a ‘toothless tiger’. Part III of this article considers the extent to which CSR principles have been regarded more as commercial boardroom concepts rather than as engendering judicial consideration in the courtroom. Part IV of this article considers the critical aspects of the business judgment rule which was introduced into Australian corporate law in 2000 together with its intersections with CSR considerations. Part V considers the extent to which CSR principles are consistent with modern human rights developments. Part VI identifi es that CSR’s next challenge is in the role which it may play in relation to global warming. Part VII identifi es the extent to which CSR needs to be considered by all corporate operators, large and small, due to the central roles played both by transnational corporations and small to medium enterprises in most national economies, including the Australian economy. II CSR — WHAT DOES IT MEAN AND DOES IT HAVE ANY TEETH? The observation has been made frequently that CSR is diffi cult to defi ne. Despite the diffi culty in defi ning CSR with precision, the debate and discussion about it and its implications continues to rage,4 and it has been said to have become a ‘mini-industry’ in both business and academic circles.5 One European defi nition of CSR which helpfully summarises its core elements and provides a useful working defi nition is that CSR is: a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.6 3 Ray Broomhill, ‘Corporate Social Responsibility: Key Issues and Debates’ (Dunstan Paper No 1, 2007); Council of the Bars and Law Societies of the European Union (‘CCBE’) lists 14 opportunities by the adoption of CSR policies: CCBE, ‘Corporate Social Responsibility and the Role of the Legal Profession — A Guide for European Lawyers Advising on Corporate Social Responsibility Issues’ (September 2003) 7. See also Helen Anderson and Wayne Gumley, ‘Corporate Social Responsibility: Legislative Options for Protecting Employees and the Environment’ (2008) 29 Adelaide Law Review 29. 4 Broomhill notes more than 800 journal articles on CSR and the establishment of numerous University think tanks committed to research into CSR: Broomhill, above n 3, 37. Lumsden and Fridman observe that much of the recent literature does little to defi ne an actual problem: Andrew Lumsden and Saul Fridman, ‘Corporate Social Responsibility: The Case for a Self-Regulatory Model’ (2007) 25 Company and Securities Law Journal 147, 153. 5 Subhabrata Bobby Banerjee, Corporate Social Responsibility: The Good, the Bad and the Ugly (Edward Elgar, 2007) 1. 6 European Commission, Promoting a European Framework for CSR, Green Paper (2001) 6. 150 Monash University Law Review (Vol 38, No 3) Not surprisingly, the very premise upon which CSR is based is said to clash with the ‘invisible hand’ of the market economy about which Adam Smith famously remarked that ‘[i]t is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own self-interest.’7 CSR’s critics and its promoters are said to fall into at least three discernible schools of thought and practice.8 The fi rst school is the ‘neo-liberal’ school which is dominated by the call for the voluntary adoption of CSR principles by corporations and is premised on the benefi ts of CSR predominantly as a risk management and promotional strategy. The second school is the ‘neo-Keynesian’ school whose adherents tend to emphasise the importance of stakeholders but, again, on a voluntary basis. The fi nal school is the ‘radical political economy’ school which presses for a different set of assumptions about the role of corporations in society and emphasises that the rationale of CSR is to overcome abuses of corporate power. To date, there has been no dominant school of thought or practice and, given the breadth of the political and policy considerations which CSR is said to embrace, there is unlikely to be unanimity in the future. Regrettably, it been said that ‘[s]eeking ethical guidelines for business decisions is [to be] compared to “nailing jello to a Wall.”’9 This is particularly telling when it is observed that CSR was championed by many institutions which have been the subject of the recent global fi nancial crisis and other notorious corporate collapses.10 As with other notable failures, the over-ready adoption of such catch- phrases runs the risk that they will be regarded as without substance when they do not refl ect realistic goals and do not give rise to achievable outcomes. Lumsden and Fridman have observed that: The recent history of Australian corporate collapses and the Jackson Inquiry into James Hardie11 demonstrate the pressure from the community on governments to be involved in the regulation of corporations and, if necessary, to further erode principles of limited liability. The incorporator’s ‘licence’ will be under threat when it is used in a way that offends what the people think is fair.12 7 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (W Strahan and T Cadell, 1776) ch II. 8 Broomhill, above n 3, 6–8. 9 Wolfgang Harder, ‘What’s All the Talk about Directors’ Ethics?’ (2006) Bond University Corporate Governance eJournal <http://epublications.bond.edu.au/cgej/6>, quoting Andrew Stark, ‘What’s the Matter with Business Ethics?’ (1993) Harvard Business Review 1. 10 See David Vogel, The Market for Virtue: The Potential and Limits of Corporate Social Responsibility (Brookings Institution Press, 2005); Ronald Sims and Johannes Brinkmann, ‘Enron Ethics (Or: Culture Matters More Than Codes)’ (2003) 45 Journal of Business Ethics 243. 11 D F Jackson, The Report of the Special Commission of Inquiry into the Medical Research and Compensation Fund (2004) whose terms of reference included the fi nancial position of the Medical Research and Compensation Foundation (‘MRCF’) and whether it was likely to meet its future asbestos- related liabilities
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